Monthly Archives: August 2007

JLP Responsible Sourcing Part XI: Environment

In our last post, we discussed the environment, corresponding to section J of the report. In today’s post, we cover section K of The John Lewis Partnership‘s Responsible Sourcing Supplier Workbook, which covers environmental issues.

Considering the breadth of environmental issues – air pollution, water contamination, waste treatment, and energy use, just to name a few – you’re probably wondering why the JLP Responsible Sourcing Workbook devotes but a single chapter and this blog but a single post in the JLP series. It’s simple – of all the issues, this is the topic getting the most attention, in no small part due to global warming and tireless campaigns of a select few, such as that of Al Gore.

Although lack of environmental legislation around pollution and waste control is usually promoted as the primary problem, the real problem is, as it has always been (and I suggest you read A Brief History of Globalization by Alex MacGillivray for additional insight), industry and its thirst to be the victor at all costs. However, now that over six billion of us have populated the far reaches of the globe, we can no longer afford to do business at all costs. With the population expected to increase to nine billion before it levels off later this century, we have to start protecting, and saving the environment today. Unless technology rapidly advances to the point where we can colonize the ocean floor, inhospitable planets, and space, we’re out of room and out of time.

Although one would hope that reaching out to your humanity would be enough to convince you to trim your wasteful ways, history has taught us better. Thus, I’m instead going to point out what’s going to happen to your business pocket book if you don’t. Sooner or later, and hopefully sooner, those who don’t clean up their act are going to find themselves regulated or financially forced out of business thanks to consumer backlash and heroic efforts by forward thinking politicians such as The Governator.

More specifically, in developed countries, I am positively predicting that not only are conscious, educated consumers going to pay slightly more for “fair trade”, “carbon neutral”, and “environmentally responsible” products and services, but that, as more of these options start to spread across the marketplace, they are going to stop buying products that don’t fall into these categories. The media backlash when they discover your sweatshop in West Africa and your dumping operation in South America is going to pale in comparison to the beating your pocketbook is going to take when consumers simply stop buying your product. Furthermore, I am predicting that as these conscious consumer groups gain in numbers, we’ll start to see progressive politicians with a back-bone who will stand up and fight for what’s right, regardless of how many oil-barrons, automobile-manufacturers, and tobacco-peddlers they p*ss off along the way. And even though they may not win at first (unless Arnold can convince a few of his more radical well-known celebrity counterparts to also run as governors and senators), they will eventually.

(What boggles my mind is the fact that so many politicians are afraid to even suggest the imposition of tighter regulations because it will “hurt the big automakers, oil companies, and tobacco plantations that employ thousands and thousands of workers and damage our economy”. This is garbage. We can make better cars, process oil cleaner, and reduce the pollutants in cigarettes with our current technology. It might cost millions of dollars to upgrade the equipment to support cleaner processes and produce alternative fuel vehicles, but this does not have to hurt the manufacturers. Just like governments give big temporary tax breaks to natural resource companies to survey and develop new sources of supply, does not mean one could not apply the same logic and give companies a temporary tax break to cover their conversion cost, as this would help to ensure their success in the long run and prevent job loss. The problems they promote with their one-sided viewpoints don’t exist as they can almost always be solved with education, creativity, and a willingness to work toward a compromise solution with long-term goals.)

Some facts on the issue from the JLP workbook include:

  • CO2 levels have risen more than 30% since widespread fossil fuel use began and are at their highest point in 400,000 years
  • Air pollution is the cause of three major environmental issues: global warming, ozone depletion, and acid rain
  • A recent survey by the World Health Organization / United Nations Environment Program (WHO/UNEP) found that 10 of 11 major cities in the Asia-Pacific region exceeded dangerous levels of Suspended Particulate Matter (SPM) air pollutants
  • Approximately 300 Million Chinese drink unsafe water and 90% of China’s cities have polluted groundwater
  • In the UK alone, there were 661 pollution incidents in 2005 that had a serious impact on water quality

What do you need to do?

  • Comply with all local, national, and international laws and regulations
  • Make continuous improvement in environmental performance, regardless of what the regulations require
  • Make practical efforts to minimize use of energy, water, and raw materials and use renewable resources whenever possible
  • Minimize waste and dispose of any waste produced in an efficient, safe, and environmentally friendly manner
  • Avoid contamination of the local environment
  • Minimize chemical usage
  • Insure there is an up-to-date action plan in place to achieve these goals

This concludes our coverage of the ten major issues tackled in the workbook. There are, of course, more issues (such as animal welfare), but these are the ones common to every organization and the most generally applicable, so they are a great start. Our next post will summarize the series and provide some concluding remarks. (You can access all of the posts in the series (to-date) by selecting the JLP category at any time.)

Supply Chain Humor This Week V

First Things First: All Hat Tips to Tony Poshek, The Satirical Sourcerer
  (formerly known as The Cynical Sorcerer, but it seems only us bloggers got the joke)

How’s that invoice payment system working for you?
Defense Contractor Was Paid $1 Million to Ship 2 Washers

A South Carolina defense contractor pleaded guilty to bilking the Pentagon out of $20.5 million over nearly 10 years by adding hundreds of thousands of dollars to the cost of shipping spare parts such as metal washers and lamps. The parts were bound for key military installations, including those in Iraq and Afghanistan. In one instance, in 2006, the government paid C&D Distributors $998,798 in transportation costs for shipping two 19-cent washers.

This only goes to show why it pays to have a rules-based e-Procurement system in place that only automatically approves invoices if the amounts are within expected tolerances and routes those amounts, along with corresponding invoice information, that are not within tolerances to a human operator.

Well here’s a new market to profit from, that I bet you never thought of: A man in India is apparently charging people to spend time with his iPhone. Not to buy it mind you, just spend some time to touch/see/feel it. Apparently ~$12 will get you 15 minutes.

At least it’s an iPhone and not a blackberry … otherwise, might have to create a new definition for RIMming

Sometimes auctions provide miracles:
An 18th-century painting went into a small U.K. auction house estimated to be worth a couple hundred pounds. It turned out to be a Renaissance masterpiece worth millions!

Just goes to show that you should always research what you buy … or sell.

5th Annual International Supply Chain Management Symposium

PMAC (Purchasing Management Association of Canada), MeRC (McMaster eBusiness Research Centre), and ORNEC (Ontario Research Network for Electronic Commerce) recently announced the keynote addresses that will be headlining the 5th Annual International Supply Chain Management Symposium that will be taking place from October 15 to 17 in Toronto, Ontario, Canada – and the line-up is looking good. The keynotes will be from:

  • David C. Swiggum, VP of Customer Fulfillment (Americas), IBM Canada
    on IBM’s Global Supply Chain Transformation
  • Jim Mikell, Canadian Country Manager, Everest Group
    on The Emergence of Third-Party Procurement Services
  • Kevin Costello, Chief Commercial Officer, Ariba
    on Spend Management: A Strategic Approach to Procurement
  • Robert C. Johnson, President and CEO, Purolater Courier Ltd.
    on Integrated Logistics Solutions

The program is also available and the conference will be tackling such topics as supply chain software and technology, manufacturing, green supply chains, order fulfillment, global supply chains, sourcing management, and supply chain optimization.

I attended last year’s event and found it quite good. In fact, all of the following posts stemmed from presentations given at last year’s event:

If you’re in Canada, or the Northern U.S., it’s one event that I would definitely encourage you to check out.

A Kick-Ass Direct Sourcing Solution for Manufacturers: Part II

In yesterday’s post, I indicated that I would introduce you to a solution for direct sourcing that was distinct from your standard sourcing suite and which was designed to manage your PLM-based sourcing needs from day one – and that is what I am going to do.

Believe it or not, the solution I’m referring to is the new solution being offered by Co-exprise, a company that has been around since 1995, managed over 175B in customer spend since their inception, and which is probably still best known for its Co-exprise MarketPlace.

For the past few years, Co-exprise has been working hard to create what they hope will be an entirely new type of PLM-based direct sourcing solution for complex manufacturers – be they aerospace, automotive, defense, heavy machinery, high-tech, medical device, or diversified manufacturing – that directly attacks the trials and tribulations faced daily by the sourcing team who have to source assemblies of ever-increasing complexity while being crunched by continually decreasing product life-cycles. And the solution they have devised is un-like any I have ever seen.

In the situation where you have a lot of complexity to deal with, where you are sourcing complex assemblies of thousands of parts, where you have hundreds (or thousands) of design specification documents in dozens (or hundreds) of formats to deal with, and where you need to collaborate in real time with your engineering team and your supplier’s engineering team, it’s the best solution I’ve seen for the type of direct-sourcing problem they are solving.

The solution, which integrates RFx, auctions, project management, collaboration, PIM, PLM integration, dashboards, and tree-based navigation, also includes enhanced security, contextual-awareness, supplier qualification, and enhanced meta-data capabilities. The application understands over 1500 disparate file formats produced by CAD, CAM, and PLM software solutions and can automatically extract relevant meta-data and apply custom compression techniques (based on wavelet theory and fast fourier transforms) that achieve 50% to 99% compression ratios and allow for faster document transmission, which is very secure as the files are encrypted using 512 bit AE2 compression and access can be restricted at a very fine grained level – and to a specific individual or IP if needed.

The solution is project-based, and everything in the system is an object. This might not sound important, but this allows everything to be cloned, which means that any project, or portion thereof, can be copied and used as a template for a future project. Furthermore, collaboration works on any object in the system – a context can be created on any file, item, sub-assembly, assembly, or project – and a focussed discussion, logged and accessible at any time, can take place. These discussions are then integrated with the task management functionality and can be tracked accordingly. The RFx solution is more than adequate, the auction capability allows for real-time bidding at a latency of only 50 ms, and basic contract management capability is being built as you read this.

It doesn’t have spend analysis yet (though they have stated that they are working on a new type of spend analysis solution more appropriate to direct sourcing then your standard spend analysis solution, which intrigues me even though they are not yet ready to release details – especially since I want to know how they plan to one-up BIQ), there’s no optimization, and no (third-party) e-procurement integration, but as discussed in yesterday’s post, spend analysis is usually a separate project in these types of direct sourcing projects, complex decision optimization is usually not required (or viable where you usually need a strategic relationship), and since everything in the system can be exported, it wouldn’t be hard to do a batch-based XML or CVS linkage to your current e-Procurement or e-Payment system, so it’s weaknesses are not significant for the problem it is addressing.

As I noted yesterday, there are other solutions out there, like the UGS solution, and you should look at any solution that appears to be relevant before making your selection, but, even though you probably haven’t heard of it, if you’re a manufacturer sourcing complex assemblies, I would not leave the new co-exprise solution off of the short-list when doing your evaluations.

I will be continuing discussions with the co-exprise leadership team (who have 200 years of combined experience in manufacturing and supply chain) and should have more to say in the future, but would like to note that they do plan to update their web-site and materials in the near future and this will help to shed some light on the uniqueness of their product. But in the meantime, if you’re a manufacturer in the market for a direct sourcing solution, give them a call or drop them an e-mail and they’ll be more than happy to give you a demo.

A Kick-Ass Direct PLM Sourcing Solution for Manufacturers: Part I

In this post I’m going to lay the foundation required to introduce you to a new direct sourcing solution if you’re a manufacturer – regardless of industry – who manufacturers, or outsources the manufacturing of, complex parts and assemblies. (In other words, if you’re in aerospace, automotive, defense, heavy machinery, high-tech, medical device, or diversified manufacturing, you may want to read these posts carefully.) This isn’t to say that it’s not useful for the sourcing of simple parts or assemblies, or that it can’t be used for indirect materials (with some caveats), just that the true power of this solution is not recognized unless you’re sourcing (at least moderately) complex parts and assemblies.

This is a distinct solution from the standard sourcing suites that is offered by the likes of Emptoris, Iasta, and Procuri; the on-line marketplace solutions like Alibaba or the manufacturing focussed; and even the PLM focussed solutions of Agentrics and UGS. Not to say that these are not great solutions, the first set are great solutions for indirect materials and simple direct materials; the middle set are often perfect at identifying potential suppliers and, especially in the latter case, for sourcing simple parts or assemblies; and the latter set are really good for PLM management within your company, but in one way or another, all fall short when it comes to complicated manufacturing and the sourcing of complex parts and assemblies, especially when you’re global.

The reason that this is the case is that sourcing an assembly is not like sourcing a straight-forward commodity, raw-material, or service. It’s not just a matter of performing your market intelligence to come up with a should cost model, executing spend analysis to identify the potential savings opportunity, posting an RFI to identify potential suppliers, creating an RFP to qualify suppliers, sending out an RFQ to get initial bids, (potentially) running an auction to determine final bids and the suppliers eligible for an award, and using decision optimization to determine the final award, which is then contracted. Sourcing a complex part or an assembly is much more involved.

When you’re sourcing a complex assembly or part, both you and your suppliers have a lot of complexity to deal with. First of all, you need to know how many basic parts exist in the sub-assemblies and sub-parts, how many instances of those basic parts exist, and what raw materials and manufacturing processes are required to make those parts. Then you need to identify and find all of the specifications and drawings and make those available, in a secure and controlled way, to your potential suppliers in formats that they can understand and work with. Then you need to enable collaboration between your sourcing professionals, design engineers, the potential suppliers’ production engineers, and the potential suppliers’ sales professionals. The potential suppliers’ production engineers will invariably have questions on the design, process, and materials and require clarifications to determine what will be involved to make the part. Then the potential suppliers’ sales professionals will no doubt have questions regarding the precise specifications and quality requirements of the raw materials so that they can provide accurate quotes based upon the feedback they get from their engineering team. (Does the bolt have to be hardness 5, or will hardness 4 suffice?)

Then something will invariably cost more than you expect, or can afford to pay based upon what marketing thinks sales will be able to sell the product for, and your combined sourcing and engineering team will have to collaborate with the combined sourcing and engineering team of the (potential) supplier(s) likely to get the award to come up with a new design or manufacturing process that will meet costs. During this process, a plethora of new documents and versions will be created and need to be tracked in a manner that is instantly accessible by all parties as soon as they are available. Then you’ll actually have to collect the quotes at the basic part level and be able to automatically roll them up into quotes for the sub-assembly and assembly and be able to compare, at each level, across suppliers to determine which supplier gets the assembly, which suppliers get the sub-assemblies, and which suppliers get the basic parts. And if you are sourcing a complex assembly with hundreds, or thousands of parts, this is no easy feat.

Furthermore, this is not something you can easily do with a standard sourcing suite, even if its on-demand and even if it is augmented with an on-demand Product Information Management (PIM) solution such as that offered by Arena (even though this is a great solution for PIM – and works great even for complex parts during a joint design phase), marketplace, or traditional PLM solution.

This is because standard sourcing suites are not designed for the management of design drawings, CAD/CAM models, and PLM and also since very few handle complex bill-of-materials with hundreds or thousands of parts (as they are designed to handle events with small to moderate sized bundles well), marketplaces are not designed for complex sourcing, and traditional PLM is not designed to be collaborative on-demand over the web.

(You might point out the UGS solution, which I wrote about in this post back in March, and it’s a good solution, but when you get down to it, it’s a relatively weak integration between separate suites of products built at different times for different purposes with different toolsets on different platforms compared to a solution built from the ground up to tackle the direct PLM-based sourcing of complex assemblies head on. Considering the number of mergers and integrations the UGS solutions have gone through, it’s impressive that they took the solution as far as they have. Whereas the UGS solution model is good for those companies who already have one or more of the tools that have been integrated and need an easy stepping stone to get to the next level, the from-the-ground-up model is probably a better way to go for those innovative companies that do not have any of the solution sets or are willing to change the way they look at PLM and Sourcing and take a new, integrated, approach.)

Furthermore, when you are dealing with the sourcing of complex assemblies, it’s usually not the raw material costs you’re concerned about, since these are fairly constant around the globe, but the production costs – which usually boils down to the labor. Auctions have little value beyond the most basic components (such as screws, nuts, and bolts) since the only wiggle room the supplier will generally have is their margin. There are not a lot of (complex) constraints, as you don’t have a lot of leeway, so complex decision optimization is usually not required – it’s really just looking for the lowest landed cost, which is easily computed, while making sure any diversity or dual sourcing constraints are met. So, beyond RFx and (at most) simple optimization, for the most part, you don’t need complex sourcing functionality. And where you are concerned about raw material costs, you’ll do a spend analysis project outside of the individual assembly sourcing events to benchmark your expected costs, which will then be fed into each sourcing event. As for contract management, the contract is fairly simple – provide the required assembly in the designated quantity at the designated time – since all the details are in the appendices which consist of the design documents and CAD/CAM models. So, tracking the design documents, the award, and a single attachment that represents the standard terms generally accomplishes the required level of contract management. And the project management that is required is not really sourcing project management but PLM project management – sourcing project management is just a subset that consists of the quoting phase and final award selection.

Thus, if you are a manufacturer – be it aerospace, automotive, defense, heavy machinery, high-tech, medical device, or diversified – there is a good chance that your current solution for sourcing, if you have one, is likely not meeting all of your needs. Furthermore, to meet your more complex needs, you likely need a new type of direct sourcing solution that was designed to manage your PLM needs from day one. In part II, I will introduce this solution to you. Stay tuned.

(P.S. In order to prevent anyone from ruining the surprise, and to insure all related discussion is centralized in one place – in the forthcoming post II, I’ve disabled comments for this post. Thank you for your patience.)